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University Endowments Gain 11.7% as Stocks Fuel Rebound

Jan. 28 (Bloomberg) -- University endowments gained 11.7
percent on average in the year ended June 30 as stock markets
fueled a rebound from a 0.3 percent loss a year earlier, the
National Association of College and University Business Officers
and Commonfund Institute said.

Universities with smaller endowments produced returns equal
to or better than wealthier schools because they keep much of
their money in traditional stocks, rather than alternative
assets like hedge funds and private equity, according to the
annual Nacubo-Commonfund endowment report.

Smaller universities “are being rewarded for being less
well diversified,” said William Jarvis, managing director of
the Commonfund Institute. “The rewards for risk taking have
been muted.”

U.S. equities generated the highest average return in
college investment portfolios at 20.6 percent while
international stocks gained 14.6 percent, the groups said.
Alternative investments returned on average 8.3 percent, with
hedge funds averaging 10.5 percent and private equity 9.1
percent, they said.

The Standard & Poor’s 500 Index gained 18 percent in the
year ended June 30.

Needed Respite

The rebound in investment returns provided a needed respite
for schools that are struggling with weaker tuition revenue as
enrollments have stagnated or declined, the groups said. Even
wealthier schools have resorted to budget cuts as they try to
minimize tuition increases while keeping commitments to offer
financial aid.

Universities are still recouping losses from 2009, posting
an annual return over 10 years of 7.1 percent that trails an
average target of 7.4 percent, according to the report.

Wealthier institutions such as Harvard University failed to
distinguish themselves with superior returns. According to the
report, schools with more than $1 billion in assets and those
with endowments less than $25 million both had annual average
returns of 11.7 percent. Over three years, the smaller schools
had a 10.6 percent gain compared with 10.5 percent for the
wealthier ones.

Asset Mix

Universities stuck with their asset mixes as those with
more than $1 billion invested 59 percent of their endowments on
average in alternatives, which are more difficult to liquidate.
Those with less than $25 million had on average 11 percent of
their portfolios in assets such as private equity and hedge
funds last year.

Harvard, the world’s wealthiest school with a $32.7 billion
endowment, said in September it had an 11.3 percent gain in
2013, fueled by domestic and foreign stock markets. The
Cambridge, Massachusetts-based university said that while
private-equity investments generated a return of 11 percent in
2013, over the previous decade they failed to outperform public
equities.

Yale University, the second-richest school with an
endowment of $20.8 billion, posted a 12.5 percent return last
year. The university, based in New Haven, Connecticut, said in
September it was lowering a target for investing in private
equity to 31 percent from 35 percent.

Verne Sedlacek, president and chief executive officer of
Commonfund, a money manager based in Wilton, Connecticut, that
oversees the Commonfund Institute, said that over the longer
term wealthier universities generated superior returns by
diversifying beyond publicly traded equity markets. He said in a
press conference yesterday that endowment returns have been less
volatile for those institutions.

The survey of 835 institutions with $448.6 billion of
assets found that universities are using more money from
endowments to support their missions, with an average spending
rate of 4.4 percent in 2013, up from 4.2 percent the year
before. Many cut distributions in the aftermath of the global
credit crisis when they suffered steep investment losses in
2009.